TaxTMI 
TaxTMI 
2026 (2) TMI 1111
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....by High Court of Justice Business & Property Courts of England & Wales Commercial Court, Queen's Bench Division ('English Court'). 2. Peter Beck und Partner Wermogensverwaltung GMBH, the decree holder in the present petition, shall hereinafter be referred to as 'Peter Beck'. Prakash Industries Limited, the judgment debtor in the present petition, shall hereinafter be referred to as 'Prakash Industries'. PREFATORY FACTS 3. Prakash Industries is an integrated steel and power company incorporated in India. 4. Prakash Industries issued 'Foreign Currency Convertible Bonds' ('FCCBs') in 2009 and 2010, which were subscribed by Peter Beck. A Subscription Agreement dated 20th December, 2017 was entered between Prakash Industries and Peter Beck ('Subscription Agreement'). The said Subscription Agreement was governed by the English law. 5. FCCBs are subject to comprehensive regulatory regime under Foreign Exchange Management Act, 1999 ('FEMA'), including directions/circulars issued by the RBI. 6. In the present case, FCCBs subscribed by Peter Beck were duly approved by RBI through its letter dated 8th November, 2017. 7. Disputes arose between the parties on account of def....
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....In the objections filed on behalf of Prakash Industries, it is stated that the Foreign Decree is in violation of the provisions of FEMA and therefore, falls within the exceptions provided under Section 13(c) and 13(f) of the CPC. 16. Yet another objection taken on behalf of Prakash Industries is that under the provisions of FEMA, payment under FCCBs can only be made to the 'registered account' of the bond holder within the meaning of contractual definition and no such registered account of the bond holder was available in the present case. 17. In light of the objections raised by Prakash Industries with regard to the FEMA violations, this Court issued a notice to the Reserve Bank of India ('RBI') to clarify its position on the remittance of funds in satisfaction of a Foreign Decree. 18. On 5th November, 2024, counsel appearing on behalf of RBI made a statement before the Court that there is no bar insofar as remittance of any amount is concerned, since the same is in satisfaction of a judgment. Pursuant to the aforesaid order, an affidavit dated 25th February, 2025 was filed on behalf of the RBI. Yet another affidavit was filed on behalf of RBI on 18th November, 2025, purs....
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....t at the rate of 7.95% per annum, which exceeds the permissible 'all-in-cost ceiling' under the Master Direction-ECB. 25. In terms of paragraph 2.1(vii) of the Master Direction-ECB, 'other costs' including pre-payment charges should not exceed 2% of the contracted interest rate, however, the English Court has awarded damages of USD 4,047,707, which is way beyond the 2% of the principal outstanding amount. 26. The affidavit filed on behalf of RBI on 25th February, 2025 confirms that interest awarded beyond the ceiling stipulated in the RBI's ECB guidelines would be in violation of Master Direction-ECB. Similarly, it has been clarified by RBI in its affidavit dated 18th November, 2025 that any damages or other costs payable in connection with ECB transaction must not exceed 2% per annum over the contracted interest rate. 27. The aforesaid ceilings prescribed by the RBI have a force of law and are not merely regulatory guidelines. Any payments in excess of these limits would be in contravention of FEMA. Therefore, the contention of Peter Beck that the issue of violation of FEMA is only a regulatory issue and not a substantial issue is misplaced. 28. The judgments relied up....
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....ion of costs in respect of false or vexatious claims or defences. The bar is not attracted in the present case as the Court that has ordered the costs is the High Court of Justice in England which is not governed by the provisions of CPC... *** *** *** 37. It is to the reciprocal advantage of the courts of all nations to enforce foreign rights as far as practicable. To this end, broad recognition of substantive rights should not be defeated by some vague assumed limitations of the court. When substantive rights are so bound up in a foreign remedy, the refusal to adopt the remedy would substantially deprive parties of their rights. The necessity of maintaining the foreign rights outweighs the practical difficulties involved in applying the foreign remedy. In India, although the interest on costs are not available due to exclusion of Section 35(3), the same does not mean that Indian Courts are powerless to execute the decree for interest on costs. Indian Courts are very much entitled to address the issue for execution of the interest amount. The right to 8% interest as per the Judgments Act, 1838 of UK can be recognised and as well as implemented in India." ....
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....ransactions have been compiled in the FED Master Direction No.5/2018-19 dated 26th March, 2019 pertaining to External Commercial Borrowings, Trade Credits and Structured Obligations ('Master Direction-ECB') which has been placed on record by the RBI along with the said affidavit. 39. It may be relevant to refer to the definition of 'all-in-cost ceiling' given in Master Direction-ECB: "1.1. All-in-Cost: It includes rate of interest, other fees, expenses, charges, guarantee fees, ECA charges, whether paid in foreign currency or INR but will not include commitment fees and withholding tax payable in INR. In the case of fixed rate loans, the swap cost plus spread should not be more than the floating rate plus the applicable spread. Additionally, for FCCBs, the issue related expenses should not exceed 4 per cent of the issue size and in case of private placement, these expenses should not exceed 2 per cent of the issue size, etc. Under TC Framework, all-in-cost shall include rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or INR. Withholding tax payable in INR shall not be a part of all-in-cost. Various components of all-in-co....
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....ssions in respect of the captioned FCCBs, we advise that we have no-objection from FEMA, 1999 angle for restructuring the captioned FCCBs and your constituent issuing fresh FCCBs of USD 24.3 million by way of cashless exchange to the existing bondholders subject to the following terms and conditions: i. Restructured Amount - Not to exceed USD 24.3 million ii. Maturity - Minimum 5 years 1 day iii. Coupon - Maximum 5.95% p.a. iv. Regulatory floor price and initial conversion price should be in compliance with the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, as amended from time to time and also with the applicable SEBI guidelines. v. All-in-cost should be within the ceiling prescribed under ECB guidelines vi. Banks, Fis, NBFCs shall not provide any guarantee / letter of comfort, etc. for the new FCCBS; vii. The restructuring should not, in any manner, adversely impact the lenders participating in CDR or any other domestic restructuring schemes, which are applicable to the company, if any. [emphasis supplied] 43. A reference may be made to Clause 7.6.1 an....
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....Early Redemption Amount is akin to the repayment of FCCBs. If the minimum average maturity period of FCCBs concerned is completed, such payment can be remitted under the general permission available to the designated Authorised Dealer as per Paragraph 13 of Schedule I of FEMA.3(R). Other payments pertaining to damages and interest payments being of the nature of current account do not require approval from RBI in terms of Section 5 of FEMA, 1999 read with the Foreign Exchange Management (Current Account Transactions) Rules, 2000 dated May 03, 2000. Nevertheless, as the interest and damages are to be paid as part of a loan agreement between a person resident in India and a person resident outside India, these have to necessarily conform to the extant provisions of ECB guidelines under FEMA, i.e., the interest shall be within the 'All-in cost ceiling' and damages will need to comply with the other costs stipulation as defined in Para 2.1(vi) and Para c respectively of Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019 (as updated)...." 47. Taking note of what has been stated in paragraph 11 of the RBI's affidavit set o....
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....A, 1999. Therefore, the damages payable by a resident borrower to a non-resident lender is required to be subjected to limits as prescribed in para 2.1(vii) of the Master Direction." [emphasis supplied] 49. As per the decree passed by the English Court, amounts have been awarded in favour of Peter Beck under the following heads: A. Early Redemption Amount ('ERA'): (i) USD 11,230,700. (ii) Interest on early redemption amount at the rate of 7.95% per annum amounting to USD 2,634,915. B. Damages for delay in conversion: (i) damages amounting to USD 3,532,711. (ii) interest on damages amounting to USD 514,995. 50. The damages were awarded by the English Court on account of breach committed by Prakash Industries of its contractual obligations i.e. failure to convert the FCCBs into equity in a timely manner as was agreed in the Subscription Agreement. The English Court has also awarded interest on the aforesaid amount of damages, which was squarely within its jurisdiction. 51. In my considered view, the amounts awarded by a competent Court, whether Indian or foreign, towards damages for breach of contract, cannot be ....
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....nder would be subjected to limits prescribed in paragraph 2.1(vii) of the Master Direction-ECB. 57. It is manifest from reading of the judgment in NTT Docomo (supra) that damages for breach of contract, such as those awarded by the English Court in the present case, cannot be subjected to FEMA Regulations or RBI guidelines. The RBI in NTT Docomo (supra) had raised an objection that permission from the RBI is required for transmission of amount awarded as damages by the Arbitral Tribunal. However, the Court held that in respect of damages awarded by an Arbitral Tribunal, no general or special permission from the RBI would be required. The Court while declining RBI's request for intervention in the enforcement proceedings, held that FEMA and RBI directions/circulars could not be invoked to obstruct or dilute the enforcement of a foreign award. 58. Relevant extracts from the judgment in NTT Docomo (supra) judgment are set out below: "44. The very stand that RBI is now taking in this Court that without its special permission there cannot be a transfer of monies by Tata to Docomo, was taken by Tata before the AT and was expressly negatived by the AT by a unanimous Award. ....
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....e interest awarded by the English Court on the ERA at the rate of 7.95%, clearly falls within the cap of 2% provided under paragraph 2.1 (vii) of the Master Direction-ECB. Therefore, there is no merit in the objection taken on behalf of Prakash Industries that the interest has been awarded by the English Court over and above what is stipulated in the Master Direction-ECB. 65. Insofar as the objection raised by Prakash Industries with regard to Peter Beck not providing a bank account, RBI has categorically stated that payments can be made to the Euro account provided by Peter Beck in paragraph no. 11 of its rejoinder dated 19th July, 2023. 66. Paragraph no. 12 of the said RBI affidavit is set out below: "12. The payment by the Judgment Debtor to the Euro account of the Decree Holder, as stated in para 11 of the rejoinder or payment by a cheque in USD or any other foreign currency is not barred by FEMA and regulations issued thereunder in terms of FEMA 14(R) read with FEMA 3(R)." [emphasis supplied] CONCLUSION 67. In view of the discussion above, it is held that the decree passed by the English Court is executable under Section 44A of the CPC. The said D....